A Robot Pilot Shot Down an F-16 - and That Makes This Tiny Defense Stock a "Buy"

William Patalon III

Back on Aug. 20, a U.S. Air Force pilot climbed into an F-16 "simulator" - in essence, a digital copy that does everything a real Lockheed Martin Corp. (NYSE: LMT) Fighting Falcon can do - and squared off in a "dogfight" against an artificial intelligence robot.

The result: The AI robot shot the human pilot down in flames.

Digitally speaking, of course.

The shoot-down of a human F-16 pilot was part of a multi-day dogfight competition sponsored by the Defense Advanced Research Projects Agency (DARPA). In fact, it played out in the grand finale of that DARPA "Air Combat Evolution" (ACE) competition - and meant that an AI "algorithm" was crowned as champ.

A robot is America's Top Gun.

It's a next key step in the "Drones Revolution" I've been chronicling for my Private Briefing subscribers.

And for investors like you, it means a hefty "wealth window" has been pushed wide open.

We're talking total "Blue Sky" profits...

The Best Defense Will Give You an Investing Offense

One thing I can say with confidence: When it comes to the defense/aerospace sector, there's no one better positioned than me to spot the big storylines, to understand the historical context, to identify the resulting wealth windows - and to target the very best ways for you folks to cash in.

I grew up as the son of a defense/aerospace engineer. My dad, William Patalon, Jr., had two degrees in physics. And the passion he had for airplanes and aerial-combat technology was infectious - and infected me. He taught me the technical history of aerial innovation, made the lessons real with aircraft and rocket projects we did together, and topped that with a mentoring insight on the business and economics of the defense/aerospace sector.

When I decided to make journalism my (first) career, one of the "beats" I kept coming back to was - you guessed it - defense/aerospace.

Through the years, as I met with industry insiders - from CEOs to test pilots - they realized that I "spoke their language," that I understood their concerns and their goals. And they were more than willing to open up to me.

I've watched much of the "arc" that the aerial combat has taken - moving from dogfights to missiles to drones. What I didn't observe personally, I learned from my reporting.

And I tucked all these secrets away for future use.

I'm using them now.

For you.

Just to give a little historical background, aerial combat has come a long way since pilots like Germany's Manfred von Richthofen or America's Eddie Rickenbacker used wooden "crates" to fight duels high over the No Man's Land of World War I.

Sleek, all-metal fighter planes powered by barking, supercharged motors came next. They were essentially "flying gun mounts" - and were the 400 mph thoroughbreds that guys like the Black Sheep's Pappy Boyington or Flying Tiger Robert L. Scott flew to ace-dom in World War II.

Then came the jet age - which really reached a combat critical mass during the Korean War. United Nations pilots weren't permitted to cross the border into China, so a section of the Yalu River became an unofficial "no-fly zone" boundary. UN pilots would circle high over the river - waiting for Russian-built MiG-15s flown by North Korean, Chinese, and Russian aviators to zoom up and meet that challenge.

The dogfights that played out there in "MiG Alley" were deadly, but still up-close-and-personal: The MiGs and North American F-86 Sabre jets still used machine guns and autocannons similar to those used in WWII.

Following the Korean Conflict, aerial combat took its next leap forward: Fighter jets could break the "sound barrier." And they were soon armed with air-to-air missiles.

These modern dogfights resembled those in the movie "Top Gun" - where aggressors got "missile lock" on an enemy, fired a missile, and blew that target away.

Those duels were highly impersonal.

But not nearly as impersonal as they'll soon become - perhaps as little as two years from now.

As last month's DARPA Dogfight Drama underscores...

On My Wing

The roster of this three-day competition included AI teams from Boeing Co. (NYSE: BA) subsidiary Aurora Flight Sciences, EpiSys Science, Georgia Tech Research Institute, Heron Systems, Lockheed Martin, Perspecta Labs, PhysicsAI, and SoarTech.

In the first round on Tuesday, Aug. 18, each team flew their algorithms into "combat" versus "adversary" AI pilots.

The teams then competed against each other in a round-robin style competition on Wednesday, Aug. 19.

Heron defeated Aurora in the other semifinal.

But Heron's "robot" pilot won it all in the finale, flaming the human F-16 pilot five times.

This DARPA screen shot gives folks a flavor of the ACE competition.

The Air Force pilot scored no victories at all.

Now, don't expect the American combat pilot to be retired in favor of AI.

But expect AI to augment U.S. airpower - and perhaps even protect American pilots.

As I mentioned to my Private Briefing Members in reports about Boeing's MQ-25 Stingray aerial tanker - which I nicknamed "The Equalizer" - the U.S. Navy wants to employ "drone tankers" to keep the manned flying-gas station-crews out of harm's way in the South China Sea.

And the Air Force wants to create a "Loyal Wingman" strategy where manned fighter jets would be accompanied by drones. These drones would "magnify" the striking power of USAF and Navy combat formations - and would provide a kind of "protective screen" for human pilots.

Here again, Boeing is a major player. It's building the Boeing Airpower Teaming System "Loyal Wingman."

Another "wingman" developer is "The Little Drones Company That Could" - the San Diego-based defense firm Kratos Defense & Security Solutions Inc. (NASDAQ: KTOS).

Once a wireless-communications-tech firm, Kratos has moved into drones of all types. These range from strong-selling target-practice drones to the sophisticated, front-line "unmanned aerial vehicle" (UAV) like the XQ-58 Valkyrie, a subsonic jet that made its maiden flight in March 2019.

The Valkyrie was created as a so-called "force-magnifying" jet that can fly in "swarm formation" with Lockheed Martin F-35 Lightning II jets, adding firepower and providing protective cover for the manned fighters.

And the Valkyrie's existence is giving Kratos a shot at an aerospace "grand prize" - a potential $400 million program to build an AI-enabled drone wingman under a United States Air Force (USAF) program known as Skyborg.

Last month, Kratos was one of four companies tapped to compete for the program. The others are Northrop Grumman Corp. (NYSE: NOC), the privately held General Atomics, and - no surprise here - Boeing.

The Air Force wants to use Skyborg to bring artificial intelligence to aerial combat. Skyborg drones will be cheap enough to mitigate the cost of a loss, but sophisticated and "survivable" enough to actually serve as "wingmen" to manned fighter jets.

And since these drones will "learn" as they fly and fight, they could eventually become an essential ally to the human pilot on whose wing they are flying, says USAF acquisition executive Will Roper.

In May, Lockheed announced a partnership between its vaunted "Skunk Works" division and the USAF Test Pilot School, which is focused on adding AI muscle to Air Force drones.

The USAF hopes to have "loyal wingman" drones operating by 2023.

That's just a little over two years from now.

New Cold War = New Arms Race

It's been eight years since I first started warning you folks about a "New Cold War" - and the "New Arms Race" it would trigger.

I knew what I was saying.

That prediction was right on the money.

And that forecast-turned-reality gives me confidence in Kratos.

Indeed, as the "New Cold War" deepens, and demand for drone technologies really revs up, you're looking at a stock that could easily jump 50% from where it's trading right now.

It's still on my "Accumulate" list, and it would be a profitable addition to your portfolio.

And in the meantime, don't forget to check out my colleague Shah Gilani's first-ever stock picking lightening round event...

You see, Money Morning has launched its first-ever stock-picking lightning round event. And Shah is flying through stocks - more than 50, to be exact - telling you which to consider buying NOW and which to drop like a ton of bricks.

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William Patalon III

About the Author

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Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.

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